The GERM Report

-Bulls and bears cheer IEA report.

-Uncertainty is the only guarantee.

The one thing market observers are sure about in this environment is the high level of uncertainty. Intraday volatility has left many people wondering about the growing disconnect between market sentiment and market fundamentals. Crude oil prices slumped in early Monday trading, only to rally hard along with equities after US policymakers pushed the stimulus accelerator to the floor. Supporting that is the customary offering of something for everyone by the International Energy Agency in its monthly market report for June. OPEC+ compliance, meanwhile, is supportive for the price of oil. What’s unclear is how vibrant and how sustainable any real recovery will be as China and some US states deal with an uptick in new cases of the novel coronavirus.

The price for Brent crude oil broke through the $40 threshold again in early Tuesday trading. The global benchmark for the price of oil was up 2.1% as of 8 a.m. ET to hit $40.56 per barrel after struggling out of the gate in the previous session.

The Arab Petroleum Investment Corp. on Monday pegged energy sector investments at a level that was $173 million lower than the five-year outlook from 2019. The multilateral bank, created by the core members of the Organization of Petroleum Exporting Countries in 1975, warned the triple threat of the coronavirus pandemic, a crash in oil prices and profound financial setbacks supported a forecast for a W-shaped recovery in the region. The impact, CEO Ahmed Ali Attiga said, was “deeper and longer lasting than past downturns,” and was “sowing the seeds of supply crunches and price volatility.” That would normally provide a durable headwind, but corporate bond purchases from the US Federal Reserve and proposals for a $1 trillion infrastructure spending spree from the Trump administration brought oil prices back to black.

Monday’s mixed bag was neatly distilled into the latest monthly market report from the International Energy Agency. And depending on your particular mindset, some comments will resonate louder than others. The recovery from the doldrums in April, the IEA stated, shows the demand destruction in the early part of the year was not as bad as initially expected. That should provide the market with some relief given the stubbornness of the global pandemic. On the supply side, OPEC+ restraint and market-driven contractions are balancing the market while mobility indicators, particularly in China, are bullish. If you’re a market pessimist, the IEA has you covered too. It may be at least 2022 before oil demand recovers and, while demand destruction was not as bad as expected, it was “still unprecedented.” And adorning the final package is a cautionary note;

“We should not underestimate the enormous uncertainties,” the IEA’s report read.

Markets by the open, however, will be in the grips of seat-edge theater as US Federal Reserve Chair Jerome Powell speaks again before US lawmakers. Testifying last week, Powell told lawmakers that hopes for a V-shaped recovery are fading and the US employment picture was bleak. Millions of American workers, he said, might not have a job to go back to for years. And as with the IEA report on demand destruction, perception reigns supreme. Commodities moved higher after recent US jobs reports proved better than expected. The phrase “better than expected,” however, is misleadingly optimistic. A US unemployment rate in the double digits is by no means something to celebrate, nor are negative GDP forecasts. While stimulus efforts are supportive of businesses hammered by the coronavirus pandemic, real-world economic data such as a negative 6.5% annualized growth rate do little for those with boots on the ground. Retail sales data showed the largest jump ever, though the positive mood may be fleeting. Analysts will spend the rest of the day cherry-picking Powell’s testimony to find statements supportive of their particular world view. And don’t rule out the influence of President Trump’s Twitter feed. Elsewhere, we are not yet out of the woods. City officials in Beijing said Tuesday there were increasing testing capacity after seeing a spike in new coronavirus infections at a wholesale market.